Authors Sue Harlequin Enterprises for eBook Royalties

[fjtorres]

How much does Smashwords pay publishers to distribute *their* ebooks to B&N, Apple, and Kobo? It sure isn't 6% of cover.
That might be a yardstick the court finds reasonable.
Or the court might look at other BPH contracts that offer up a nominal 25% (before funky accounting schemes) as fair comparables.
The plaintiffs seem to have multiple roads to victory; Harlequin just one--summary judgment. Failing that, they'll lose. (Or settle.)
Sometimes a scam is just a scam and no amount of smoke can hide it.
We'll see soon enough.

[Kali Yuga]

Originally Posted by pdurrant

I don't think one needs to take a balanced view of all situations.

I don't think you need to treat every lunatic as though they have a Nobel prize. However, when it's a matter of contract law, you need to:

a) strive for a balanced, neutral and factual view
b) figure out who actually signed what
c) require both parties to abide by their agreements and contract law

I'd also say it is slightly ridiculous to treat a filing -- by either the plaintiffs or defense -- as though it is gospel truth.

More to the point, contract disputes aren't about your emotional reactions about "what is fair." It's about what is in the contracts. And you're not going to get a *cough* balanced view about the validity of a particular legal argument from a cheerleader for the plaintiffs.

[Sil_liS]

Originally Posted by fjtorres

We'll see soon enough.

It's been 4 months already. Christmas is just around the corner and nothing will get done.

[Kali Yuga]

Originally Posted by fjtorres

Or the court might look at other BPH contracts that offer up a nominal 25% (before funky accounting schemes) as fair comparables.

Or, they might disregard the argument altogether, since the court isn't obliged to cherry-pick the contract in the same way as the plaintiffs.

Don't get me wrong, the plaintiffs' attorneys are doing their job. The thing you need to keep in mind is that their job is to wring as much money as possible out of a corporation for themselves as possible -- oh, and for their clients too. As such, their claims (and Harlequin's) should not be accepted uncritically.

Originally Posted by fjtorres

The plaintiffs seem to have multiple roads to victory...

They're presenting multiple legal arguments, which is absolutely normal for a lawsuit.

Originally Posted by fjtorres

Harlequin just one--summary judgment. Failing that, they'll lose.

Incorrect.

Harlequin would need to have an exceptionally strong case to get a dismissal or summary judgment. However, if they can't get the case dismissed outright, they could still go to trial and have a favorable outcome.

More likely is that they'll do the usual legal jockeying for awhile, then settle.

[Kali Yuga]

Originally Posted by Sil_liS

It's been 4 months already. Christmas is just around the corner and nothing will get done.

A lawsuit like this could easily take 2 years to get resolved.

[pdurrant]

I don't think the idea that Harlequin should pay authors 70% has ever been suggested.

What was suggested is that the part of Harlequin acting for the author and licensing the book to another part of Harlequin for publication as ebooks (and legally, I think, should have been acting in the authors' best interests while doing do), should have been looking to receive closer to 70% of the retail price for the licence, not 6-8% of RRP. That would have resulted in the authors receiving closer to 35% of the RRP for the ebooks, rather than the 3-4% they have actually been receiving.

[Kali Yuga]

Originally Posted by pdurrant

I don't think the idea that Harlequin should pay authors 70% has ever been suggested.

The complaint is pushing for at least a 50% royalty rate, and the "Legal Minimum" blogger is suggesting a 70% rate.

Originally Posted by pdurrant

What was suggested is that the part of Harlequin acting for the author... should have been looking to receive closer to 70% of the retail price for the licence, not 6-8% of RRP.

The 6-8% is the author royalty, paid by the Swiss subsidiary. When licensing the ebooks, Harlequin interpreted the contracts to mean the subsidiary got paid half, so the authors got half their normal royalty rate (3-4%).

The plaintiffs and their attorneys are not trying to get 4-6%, or even 6-8%. They're trying to interpret the contracts to mean "authors get a 50% royalty on digital."

[Sil_liS]

Originally Posted by Kali Yuga

A lawsuit like this could easily take 2 years to get resolved.

Which I wouldn't say is soon enough.

[pdurrant]

Originally Posted by Kali Yuga

The 6-8% is the author royalty, paid by the Swiss subsidiary. When licensing the ebooks, Harlequin interpreted the contracts to mean the subsidiary got paid half, so the authors got half their normal royalty rate (3-4%).

The plaintiffs and their attorneys are not trying to get 4-6%, or even 6-8%. They're trying to interpret the contracts to mean "authors get a 50% royalty on digital."

You have it the wrong way around. The author's contracts (With HS) do say that they get a 50% net royalty on digital! The 6-8% is the license that HS agreed with HE.

The authors signed a publishing agreement with the Harlequin Swizerland, as required by Harlequin Enterprises. That agreement said that Harlequin Switzerland would pay the author 50% of net receipts from "exercise, sale or license" of the digital rights to their work.

Harlequin Switzerland then licensed the digital rights to Harlequin Enterprises for 6 to 8% of the sale price of the ebooks.

Now, if the fiction is maintained that HS and HE are completely separate, then HS has clearly not acted in the best interests of their authors in agreeing to a license of the digital works on such very poor terms.

If HS and HE are considered as one entity, they are depriving the authors of their due royalties.

Either way, I think that Harlequin is in the wrong.

[pdurrant]

The case continues, with motions to dismiss and rebuttals.

http://www.harlequinlawsuit.com/

[Elfwreck]

The key argument seems to be this:

Plaintiffs assert that HEL should “be understood as the assignee of the Publishing Agreements” because it “exercised all the rights and responsibilities of the Publisher.” (Opp. 19.) But plaintiffs do not identify any “rights and responsibilities” exercised by HEL that go beyond the broad delegation provision in the Publishing Agreements—which did not provide for any change in the definition of “Publisher” or the royalty calculation. (See D. Mem. 7, 18.) Moreover, even if plaintiffs had adequately pled an assignment—which was also expressly provided for in the Publishing Agreements without any effect on the definition of “Publisher” or the royalty formula (see id.)—plaintiffs cite no authority that would support finding that HEL was the “Publisher” for purposes of calculating royalties.

Harlequin says "they signed a contract with HEBV and/or HBSA, so they have no grounds to sue HEL because HEL is not their publisher." They do some interesting skipping over the concept that one-or-more of those entities is a dummy corp, and keep coming back to that.

They claim that the authors' allegations--"that HEL established its affiliates for tax purposes and handled the drafting, negotiation, and administration of the agreements (Opp. 16)—do not begin to address the standards for alter ego liability set forth in the case law," and therefore the authors are stuck with however HEBV/HBSA decides to manage the money.

They also say "Indeed, it is unclear in what way plaintiffs believe they were wronged," because of course, getting paid 4% when they expected 25% of cover price is not a wrong. (Apparently, that's covered under the "all other rights" bit of the contract, and authors should just suck it up.)

They make the fascinating claim that "even if plaintiffs had sufficiently pled an alter ego theory against HEL, that would have no bearing on the proper definition of Publisher for purposes of calculating plaintiffs' royalties." Because if the plaintiffs had proof that they signed with dummy corporations whose sole existence had the purpose of filtering money away from authors, those are still the corporation they signed with.

Um. I don't know about the standards for alter ego, but I'm hoping a judge is clear enough to say, "no, if you made a fake corporation, with no independent authority, then authors did not actually contract with that corporation; their contract is with the organization that controls the publishing of their books. They get paid according to that corporation's net, not your filter-company's income."

[pdurrant]

I hope that the case gets decided for the authors. It's clear (to me) that Harlequin set up the Swiss corporations as tax avoidance measures, and then when ebooks came along realised that they would also make a very good author payment avoidance measure as well.

[fjtorres]

Originally Posted by pdurrant

I hope that the case gets decided for the authors. It's clear (to me) that Harlequin set up the Swiss corporations as tax avoidance measures, and then when ebooks came along realised that they would also make a very good author payment avoidance measure as well.

Ditto.
I do find it amusing that some of the people castigating Amazon for their tax minimization strategies eagerly support HQ on their two-fer manuever.

[pdurrant]

It seems that the authors' lawyers haven't made a persuasive enough initial case. The judge has agreed to the motion for summary dismissal.

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